Annual Credit Report

If you haven't already, you should take advantage of the free annual credit report you are eligible to get each year.  Make sure you get it at annualcreditreport.com which is the official site.  While you don't get to see your FICO score, you do get to look through all the accounts you have currently open.  The accounts will show the status for each month it has been opened.  Hopefully, you will only see green OKs which means that each month you either fully paid off your account or you didn't draw a balance.  Yellow and red symbols usually indicate late payments and will have a negative impact on your credit score.  If you see an unfamiliar credit card or loan taken out under your name, you may be the victim of identity fraud.

Vacation Credit Card

Just coming back from a month long trip in New Zealand, I thought it would be a good opportunity to talk about vacation. I'll probably split this topic over the next few posts with this one focusing on how to get access to foreign money.

Vacations are important for any balanced lifestyle.  It offers the opportunity to relax and rejuvenate as well as seeing new places and exploring new cultures.  If taken at home, you are able to rest your body and mind to better prepare yourself for work when it resumes.  Taken abroad, vacations offer the chance to break out of your comfort zone and enrich yourself with new experiences.  Of course, you can always also explore new activities and areas in your hometown and you can relax abroad, but I find that most often that travelling to some place new invokes a greater sense of adventure.

Merchant Credit Card Fees

I have several posts lauding the benefits of credit cards for consumers, especially those with no annual fees and reward programs.  Assuming that you treat your card like cash and only spend enough to pay off your monthly bill when it comes out, there is only positive benefits: you get a 1-5% cash reward on all your spending, you delay your payment for a month which allows you to earn interest (albeit small in the current environment), you decrease the risks with carry cash like losing it or getting it stolen, and you establish/improve a credit history for future use with other loans.  However, credit card companies still need to make money.  Thankfully (in some aspects), not all of us are as careful with our spending and those who miss their payments or spend more than they can afford will be paying these banks and credit card companies high interest rates.  However, if in some magical world the majority of people were to become more responsible with their credit cards and paid all their bills on time, the only source of revenue for companies on these cards will be from fees merchants pay to accept them.  And even that is slowly going away.

American Express Small Business Saturday

Forget Black Friday!  If you have an American Express card, I urge you to take advantage of their Small Business Saturday promotion.  Sign up on their website and you can get a $25 credit for buying something at a small business.  Most local restaurants and stores count so treat yourself to a nice meal while helping your local businesses.  Just make sure you spend at least $25 in one transaction after registering to get the credit.  It is too good a deal to pass up!

International Access to Money

Roughly 60% of Americans do not have a passport according to the State Department as of January 2012.  If you belong in that majority and plan on staying in it, this post will probably not be very relevant.  However, for those of us who do have a passport and plan on using it, we have to prepare before going abroad.  Especially within my age group, many students study abroad, backpack across a different continent over the summer, or even attend college in a different country.  For those of us who haven't, learning how to get access to money is the first step.

Credit Card Expenses YTD 2012

Some of the benefits of budgeting is that you can get a really good look at how your expenses shape up year after year.  Are your consumer habits changing?  Maybe you didn't realize that eating out every day rather than every week was having that big of an impact.  Taking the time to check with a budget can be really helpful.  I am going to take a look at my records for the first half of 2012.

How to Apply for a Credit Card

So although my first few posts were about why you should use a credit card and my recommendations for credit cards, I have yet to actually describe the process of applying for one.  I thought I'd spend this week's post explaining the process in detail, specifically applying online and receiving the card in the mail a few weeks later.

The Small Balance Credit

Recently, I decided to forgo maximizing my rewards (since this usually amounted to getting an extra quarter each month) to using each and every one of my cards at least once a month.  This way, I can hopefully start focusing on building a better credit score which should benefit me in the future after graduating.  I raise my credit score by charging a small balance on each one and keep these balances low relative to my credit limit.  This helps show credit companies that I know how to manage my credit effectively with low risk which in turn raises my credit score.  This often results in balances of maybe a couple dollars since I just buy one thing from the grocery store or a fast food restaurant.  Amazingly, after just one month of starting this, I came across a very interesting phenomenon.

Credit Card for 2012

After looking at my credit cards in 2011, I have decided to pick my favorite for those of you looking for a new card in 2012.  Keep in mind that if you are new to credit cards, you may want to try to get a student credit card first or ask your parents to add you to one of their credit lines before applying for your own. Well, without further ado, my pick for 2012 is the Chase Freedom card.

2011 Spending in Review

Happy New Year everyone.  I thought I'd take a post to look at my expenses for this previous year and use it to help give me a good idea of how much I should be spending in the future.  Also, for those of you still looking to get your first credit card, it may help to see which credit cards I use most often and what returns I get through their cash back programs.

Why You Should Manage Your Personal Finances

I've been regularly posting on my blog for more than half a year already, yet I think I have neglected one of the most important topics that need to be addressed: why should you even bother learning about personal finance?  Of course, some of us may automatically say "obviously, it's to have more money."  But that isn't the real reason. There is a reason why we even want money in the first place—so that we can pursue our interests and find what makes us the happiest.  Everything always comes down to seeking happiness and how it comes to each and every one of us is almost completely unique.

Types of Credit Cards

I have posted on several occasions about the benefits of getting a credit card, but there are a lot of credit cards out there.  I stress reward credit cards because I am blogging about making money and an easy way to make money is to get paid for your normal expenditures.  There are a few different types of credit cards though which I will go through.

Credit Card Overview

I thought I'd go through a quick list of my credit cards, the pros and cons I have found with each one, and what their purpose is for my spending habits.

Credit Card Rewards So Far 2011

Taking Advantage of Bonuses

Often times, there are a lot of great deals you can take advantage of as a new customer.  I wanted to specifically look at some of the bonuses you can get at banks.  There are often lots of incentives if you open a new checking account or a credit card.  While lucrative, you often have to pay attention to the fine print.  For credit cards, make sure you aren't getting a card with an annual fee.  I can't even count how many offers I get from airline credit cards every year, but all of them have annual fees.  There are options out there that don't have an annual fee, but still give great introductory bonuses.  Some of them depend on fulfilling another criteria.  For example, the Chase Freedom card has several promotions floating about.  You can either get $50 with the card after your first purchase or $200 if you spend $500+ on it within the first 3 months.  If you plan on spending $500 in the next 3 months, why not get the card and get 40% of that back?  Bank of America also has a $50 cash back offer (after spending $100 within 60 days) with one of their new cards which also gives 2% back on groceries and 3% back on gas.  Of course, this all assumes that you are responsible with credit cards already and you won't be tempted to overspend.

Your Credit Score

I've mentioned the FICO Credit Score a few times in my previous posts, but I recently took a look at my credit score and thought it would be helpful to share with everyone what are some of the positive and negative factors that go into your score.  I'll list out the main ideas and then paste the details that came with my report below.

1. Always make your payments on time and never miss any if you can avoid it.  Make sure you don't miss consecutive payments which is often worse than missing a few stand-alone payments (separated by a few months).

2. Make sure you have a few accounts with access to credit, but avoid signing up for too many (or signing up for several in a short amount of time).  I'm not sure what too many is, but it is probably safe to say that double digits is pretty high (if you wake up one day with 10 or more cards).

3. Make sure your credit lines report your credit limit.  If you have a credit card but it doesn't report your credit limit, then it's hard for future lenders to gauge how much credit you have been trusted with in the past.

4.  Establish a credit history early, at least a few years before you plan on applying for loans.  Short payment histories are negative, since it doesn't provide very accurate or reliable information on your payment habits for lenders.  Below, it says shorter than 3 years is way too short and shorter than 7 years is risky.

5. Avoid running a high balance on your lines of credit.  Lenders will worry that you are living beyond your means.  Running a low balance frequently is the best for your score; running no balance may be negative since it doesn't provide additional information on your repayment habits.

6.  Avoid applying for credit before applying for credit.  When you need a loan, make sure you don't apply for credit cards the prior year since lenders worry that you may be trying to take on too many new accounts at once.

Annual Credit Report

It is important to check your credit report at least on an annual basis.  Each year, you are allowed to view your credit report for free at https://www.annualcreditreport.com/cra/index.jsp.  Make sure that you take a look at your report regularly to see if anyone has been using your name to get credit.  A lot of banks offer credit protection services for a fee where they will monitor your credit report to alert you about identity theft.  These services also give you a look at your credit score in case you are curious.  A lot of them also include a one month free trial so that you can check it out and not get charged for that first month, but you have to remember to call them before the month ends or else they will bill you for the next month (and you need to give them a credit card when you sign up).  I personally don't use one at the moment, but I do check my report on an annual basis.  I believe the government recommends checking it semi-annually, or twice a year, although you would have to pay for the second view.  Identity theft is said to be a very serious issue.  Although I have never been a victim of it and I haven't heard of anyone becoming a victim of it, I would rather stay on the safe side and do the minimum by checking my credit report.

Possibilities of Good Credit

What are the benefits of a good credit score?  First of all, what does qualify as a good score?  The line drawn might differ depending on who you ask, but a 740 or higher would put you in the top third of Americans.  It will get you some of the lowest rates on home and auto loans.  However, a good credit score also gets you lower rates on credit cards and better cash back deals.  Also, when purchasing a car and looking for financing, dealers will typically be locked into preset rates for financing; but, you could talk about finding better loan offers elsewhere to leverage in negotiating the sticker price.  If you are looking for a vacation home or (more likely for college students) a place to rent, a high score usually is a sign of a responsible tenant which will help again in your negotiations for price.

Credit Card Recommendations

This is continuing my credit card section so if you want to read about why you should get a credit card, I would go to my first post.

There are several factors to keep in mind when picking a credit card, but the most important one in my opinion is that it should have NO ANNUAL FEE.  There are so many credit cards available without an annual fee that I don't see any reason to get one that does.  The main benefits with a credit card are already achieved through a standard one, so one with an annual fee doesn't seem justifiable no matter what marginal bonuses are added on.  And annual fees are like a guaranteed cost.  They are not necessary and should be avoided in looking for a credit card.

The second thing I look at is the rewards.  Most cards give 1% back as a basis, either through cash back or points, and have additional benefits on special vendors or in revolving categories.  This is how you measure the potential return a card can give you on how much money you spend.  There is often also a nice signup bonus where you can get $50-$100 after your first purchase or spending a set amount of money in a set amount of time after receiving your card.  Also, I personally prefer cash-back but there are other options such as points and miles that you may prefer.  It is important to look at what rewards program your card will offer and if it matches your tastes.  I'll mention some of the rewards with certain cards below.

The third thing to look at is the network.  I generally find card acceptance for networks fall into two tiers: Visa and Mastercard are the most widely accepted while Discover and American Express seem to have lower acceptance, although this has recently been changing.  I believe that Discover's student credit card is fairly popular, and I generally don't have too much problem with its acceptance at vendors in general.  Depending on how much of a credit history you have, I would recommend trying to get a Visa or Mastercard, all else being equal (rewards and annual fees).

Another important feature to pay attention to is the APR (annual percentage rate).  However, I would say this is the least important number if you do what I do and pay off your entire bill at the end of each month.  The APR is the interest rate charged on any unpaid debt after the grace period.  I'll have to admit that I don't know the APRs of any of my credit cards simply because I never pay interest.  This number generally varies between 10-20% but may be higher or lower and it is very important to pay attention to it if you are someone who is likely to be unable to fully pay the balance on your card at the end of the month.

Now I'll list the credit cards I have with some comments and ratings (out of 5 stars, *):

**** Discover Student Rewards Card (Discover): This is a fairly standard card for students since it is fairly easy to get.  I started out with a $500 credit limit and it has basic cash-back rewards.  It has a revolving 5% cash back on certain categories like groceries, restaurants, department stores, and travel.  For example, from January to March, I can get 5% cash-back on restaurant purchases.  These revolving 5% cash-back is subject to a maximum limit (i.e. 5% cash-back on up to $600 of grocery purchases), so make sure to pay attention to that if you are spending partially to get the cash-back.  It is also important to note that the card normally gives UP TO 1% cash-back on other purchases (I believe it is actually around 0.10% up until a certain spending amount before it actually becomes 1%).  I usually only use this card on when I have the revolving 5% bonus.  Something that is really nice about the rewards system though is that after earning, let's say, $20 in cash-back, you can actually get another bonus and trade those rewards for a $25 gift card.  This increases the yield and makes the Discover card one of the most attractive rewards vehicles in terms of credit.  Again, the acceptance is not ubiquitous but there probably won't be too much difficulty with places accepting the card.

** Citi Forward for Students (Visa): I got this card early on but I rarely use it ever.  For whatever reason, they gave me an abnormally large $4000 credit limit which was convenient for booking plane tickets and buying summer storage.  However, in terms of rewards, I have to say that it is the most disappointing out of all the cards I've had so far.  There was a nice bonus for signing up and switching to e-statements, but the rewards system they use is called Thank You points and almost any reward will be less than a 1% return.  Right now, I just leave it at home instead of carrying it in my wallet.

*** Capital One Cash Rewards (Visa): I got this card within the past year and it has been great.  It does a basic 1% cash back on purchases and 2% cash-back on dining, book stores, telecom, and entertainment.  I'm not sure how it picks the categories because I believe if you look at their site right now, it will say that the 2% is for gas stations and groceries.  Overall, the yield is a little low but it's a good standard card.  Redeeming cash-back is also simple without any minimum amounts (like you don't need to get $25 cash-back before you are able to use it.  Regardless, I usually use my Capital One when I don't have a revolving 5% cash-back available on Discover or the next card I will show.

***** Chase Freedom (Visa): Chase is the most recent card I have received and it does something similar with Discover in that it has a revolving 5% cash-back and basic 1% cash-back on normal purchases.  It comes with a nice sign-up bonus (mine was $50 after the first purchase) and they have some interesting features such as full-pay where they will tell you your total spending in certain categories so that you can pay those off and avoid paying interest on it.  I got the feature even though I never use it since I pay off the bill in full every month, which is again what I recommend to anyone who gets a card.  And Chase Freedom is definitely a card I would recommend to anyone who has a decent credit history since the Visa network makes it more widely accepted than Discover.  Currently, I believe they have an offer for $150 cash-back after $500 in purchases within 3 months of getting your card.  If you are buying a round-trip ticket from school to home over the summer, that alone could satisfy the minimum and get you 30% back on that $500.

The first two are student cards so if you are starting out to build your credit history, I would recommend getting those first.  I actually got a co-signed credit card before my Discover which may have helped me get all the cards I have now by having some credit history instead of no credit history.  If you are not looking for a student credit card, I would definitely recommend Capital One and Chase.  By keeping track of the categories with the most cash-back, I have accumulated a couple hundred dollars worth of gift cards or cash-back over the past two years.  I have seen some other promising cards like the American Express Blue Cash Everyday which gives more cash-back all year round in certain categories (but beware of its acceptance) so it may be good to shop around.  If anyone knows a no annual fee, cash-back card that I haven't mentioned that may be useful to look into, I would appreciate hearing about it in a comment.

Overall, credit cards can be a great way to build up your credit and earn some free money.  It is important to remember to fully pay your bill by the end of the grace period each month, but as long as you do so, you should be able to earn a decent sum over the course of a year.  Not to mention the convenience of just swiping a card instead of getting out cash regularly as well as the ease of paying bills online nowadays, a credit card is a handy tool if used correctly.  I haven't placed links to the credit cards I mentioned since I don't want it to seem like I personally endorse them or that I get some sort of referral bonus.  They are easily searchable on Google but I am happy to help if anyone has any trouble finding a card I mentioned here.

This ends my short series on credit cards.  I haven't quite decided what the next topic will be about but I may ask my friends for some recommendations.  Feel free to comment if any current readers have a preference, although I won't expect any since this blog is so new.

Why Credit Cards?

This post will primarily be about what is a credit card and how you can use one to make money on the money you spend.  I will go over credit card reviews in the next post most likely, but you can look at some credit card comparisons here.

A lot of college students actually don't use a credit card, or at least a lot of my friends do not currently own one. Yet I believe a credit card, used wisely, can actually be one of the best ways to make some money back.  Nowadays with the rewards programs offered by many credit card issuers, it is easy to make back 1-5% back on your normal purchases and you are essentially getting paid to spend what you normally spend.  For those of you who have a savings account (which I'll go over in a later post), this means even more potential earnings since you delay payment of your purchases by a month or more which allows your cash to earn interest in the bank.

First of all, what is a credit card?  A credit card is a plastic card with a magnetic stripe which you can use at most businesses.  You have some credit with an issuer, let's say $500.  Essentially, when you make a purchase with your credit card, the company giving you credit promises to pay the business you are shopping at and then bill you at the end of the month for the total purchases you make, up to your credit limit of $500.  Why would a company offer to pay for you?  Credit card companies make money through two main sources: interest on late payments and fees charged to merchants.  You usually get a grace period of around 25 days after you are billed to pay the amount you spent that month, and if you pay it in full before the grace period ends, there is no interest charged.  If not, then whatever balance you have not paid off will accrue interest (usually 10-20% which can add up, so make sure you pay your bill in full every month if you do decide to get a credit card).  Also, if you swipe your card at your local grocery store for $10 worth of groceries, the store actually only receives perhaps $9.50 and the last fifty cents go to the credit card issuer and the credit network you are with.  There may be a minimum fee along with a percentage, which is why a lot of stores often have a minimum purchase requirement to be able to use your card.

Why should you use a credit card?  The first reason many people start getting a credit card, especially when they are in college, is to start building up a credit score.  This credit score, called a FICO score after the company that handles the process, is a measure of how risky a person is with credit.  It is used for other credit cards, car loans, mortgages, etc.  The main metrics used to determine your FICO score include your credit card payment history, the length of your history, amount of debt you currently have (in proportion to your total credit limit), new credit you have recently opened, and the different types of credit you have.  The score itself is between 300 and 850 and normally determines whether you qualify for loans and other forms of credit above, as well as how high of an interest rate you will be charged.

The second reason is to be able to afford things you normally wouldn't be able to (and not have to carry around a lot of cash all the time).  By using a credit card, you could buy something you wouldn't be able to afford until next week when your pay check arrives.  Although I use my credit cards the same way I do cash, there are some people who forget about how much they spend in a month and often go overboard.  However, if you use a credit card the same as you do cash for necessary purchases, you can actually make money off the rewards you get back, which brings me to the third reason.

This is probably the most overlooked reason since many people underestimate how much 1% on how much a person spends in a year really is.  It can easily get up into the hundreds of dollars a year for essentially buying the same things you would buy normally.  And, depending on how you manage your credit cards, you could end up earning back 5%.

So to sum up, getting a credit card at any age is important to start building your credit history, to have the option to spend more than what you actually have, and to earn cash back for almost no extra work.  Especially as a college student, it is important to learn how to become fiscally responsible and manage your personal finances.  Of course, the critical note to remember is that credit cards can be very dangerous without full control over your spending habits.  Many people fall victim to spending more than they can afford just because it is available and they don't have to worry about paying it until later.  If you do get a credit card, only spend what you have the cash for and make sure you follow a budget (I'll talk about a budget in a later post and how it shouldn't be as much of a restriction as it should be a guide).  In the end though, credit cards are the logical first step toward personal finances, and I would strongly recommend getting them.  Hopefully, this post has shown why they are important and you can read a future post to decide how to pick which card is right for you.